Budget Background

Sep012011

By law, the administration is required to provide by July 16 an update of the president’s proposed budget for the coming fiscal year. The update, which has come to be known as the Mid-Session Review (MSR), must provide revised estimates of receipts, outlays, budget authority, and budget deficits, taking into account information such as newly enacted laws, changes in the economic outlook, and changes to the February budget that “the President decides are necessary and appropriate based on current information” (31 USC 1106). These budget revisions arrived today almost 7 weeks after the statutory deadline.

Since President Obama attempted to distance himself from his February budget in April—delivering a speech in which he claimed the existence of a “framework” to reduce deficits by $4 trillion over the next 12 years—one might reasonably expect that this year’s MSR would include those alleged policy changes in order achieve the deficit reduction goal set forth. Further, given that the president has said our urgent economic situation necessitates the delivery of another speech next week, one might anticipate that the MSR would incorporate the cost of that yet-unseen plan in the Mid-Session Review.

In fact, the president’s MSR does neither of those things. Its fiscal policies can be summed up as follows:

Accept the discretionary caps enacted in the Budget Control Act ($900 billion),

Raise income and estate taxes from current law levels ($1 trillion)—a proposal already contained in his February budget.

Thus, the president’s MSR recycles his February budget—ignoring the promises of deficit reduction from his various speeches—updated only to include the recent debt limit deal enacted by Congress. In reality, the only plan the president has on paper remains the February budget, which would have grown the debt by $13 trillion over 10 years and which was discarded unanimously in the Senate. This is in addition to the $5 trillion in gross debt the president will have added during his first three years in office.

Other than the elimination of the Bush tax cuts for individuals and small businesses with income over $250,000 and an increase in the estate tax to 2009 levels, the MSR does not provide specific policy recommendations. The MSR notes “the President will recommend an ambitious, comprehensive, and balanced deficit reduction plan to Congress in September” (MSR pg. 3), which the president would like the Joint Select Committee on Deficit Reduction (JSC) to consider (MSR pg. 6).

Failure to provide policy details in the context of the statutorily required budget update both undermines the budget process—which requires sufficient disclosure for the Congress to evaluate and dispose of the president’s proposals—and impedes the progress of the JSC, which now will lose valuable time waiting for the president’s recommendations. The MSR also makes clear (pgs. 3–4) that the deficit reduction plan is separate from the economic growth and jobs program that the president will unveil next week—and likely will be financed only by additional debt since it is not a part of the JSC’s deliberations.

Near-term deficits are likely to be substantially higher than the $1 trillion projected by the MSR for the coming year for two reasons. First, the MSR acknowledges that its economic forecast may be a bit rosy based on recent data, and second, the effects of another round of stimulus are not incorporated into the estimates. This also calls into question the believability of the MSR’s projection of $5.9 trillion in deficits over the next decade—but since there are no details to estimate, CBO is prevented from providing an independent assessment of their budgetary effect.

On the whole, the MSR is not a budget plan, but rather another lost opportunity for the president to offer leadership on budget matters—all at a time of lagging growth, persistently high unemployment, and a third straight year of trillion-dollar deficits.